Anthony Albanese’s tax cut deceit to cost $28bn

The PM’s revised tax cuts will take nearly $30bn more from workers over the decade because of the effects of bracket creep.

Anthony Albanese at the National Press Club in Canberra on Thursday. Picture: AAP

Anthony Albanese’s revised stage three tax cuts will take nearly $30bn more from workers over the ­decade because of the effects of bracket creep on higher-income Australians, with the Prime Minister on Thursday refusing to ­concede he broke his promise to the nation.

Mr Albanese dismissed suggestions he had lied about his commitment to honour the stage three tax cuts, telling the National Press Club in Canberra that Australians could “trust me to make the right call, not the easy call”.

Peter Dutton said the tax ­revamp showed Mr Albanese had panicked ahead of the Dunkley by-election on March 2 and ­demanded he call an early election and “put the changed position to the Australian people and let them be a judge of his character”.

“How do you trust a bloke who’s gone to two elections, telling you that his word is his bond, and that he has made a solemn promise to the Australian public – repeated 100 times – and then walked away from it?” the Opposition Leader said. “I think his leadership is terminal.”

Mr Albanese justified the backflip by arguing the world had changed as a result of the pandemic, the first recession in three decades and the far-reaching ­consequences of the Ukraine war – factors all known ahead of the last election.

But he rejected suggestions it was reasonable for Labor to have taken a reworked stage three tax cut package to the 2022 federal poll.

“The aftershock has been much greater than what was anticipated,” Mr Albanese said. “The other thing that was not envisaged in 2022, as you know, was that … the Russian war on Ukraine and the invasion would be ongoing over such a long period of time.

“That impact on energy prices that then flows through to the logistics industry, to supermarket shelves, was very significant indeed. No-one in 2022 at the election, I don’t think, was pointing towards those factors at all.”

The Treasury analysis of the changes – released on Thursday – shows the revamped tax package would increase government revenue by $1.3bn in 2024-25, remain broadly revenue neutral over the next four years but increase tax receipts by about $28bn over the decade. It said the changes would not add to inflationary pressures.

The shake-up will deliver about $388bn in income tax to the government to 2034-35 rather than $360bn, with the difference largely the result of bracket creep for higher-­income earners as a result of keeping the 37 per cent tax rate between $135,000 and $190,000.

Opposition Treasury spokesman, Angus Taylor, said the government was “at war with aspirational Middle Australia”.

“They’ve admitted they’ll be whacking them with $28bn in more taxes over the next 10 years,” Mr Taylor said.

Under Labor’s changes, Australians earning less than $146,486 will be winners. But those earning more than this threshold will be relatively worse off, with Australians on $200,000 to lose half their $9000 tax cut – leaving them with about $4500.

While Jim Chalmers declared on Thursday the government’s plans would be “better for aspiration”, business disagreed.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar said the shake-up kept bracket creep “alive and well” and would affect more and more middle-income workers over time.

“In the medium term, middle Australians will pay back more of the tax cut, more will go back to Treasury, in fact it will be revenue positive. It’s not a tax cut; it’s a tax hike,” Mr McKellar said.

Independent economist Chris Richardson said Labor’s package was less generous than the Coalition’s legislated tax cuts over the decade because it retained the 37 per cent tax rate, for people earning $135,000 to $190,000.

Under the Morrison-era legislated tax cuts, a flat rate of 30 per cent would have applied to those earning between $45,000 and $200,000. Labor’s package reduces the low-income tax bracket rate for Australians earning $18,201 to $45,000 from 19 per cent to 16 per cent. The 30 per cent rate will apply to those earning $45,001 to $135,000.

“Over time, more people (under Labor’s plan) will be finding themselves pushed onto a higher tax bracket because we lose that initial design feature of 30c in the dollar for everyone from $45k to $200k,” Mr Richardson said.

“As time goes by, this rejigged tax cut raises more taxes because more people will shift onto 37c in the dollar. There’d be a handful of people more likely to be on 45c in the dollar too.”

Mr Richardson said he was “not fussed” Labor’s plan would cost an extra $28bn over a decade, saying governments could intervene in the years ahead to address bracket creep.

Mr Albanese said the government’s package was addressing bracket creep, nourishing aspiration and boosting workforce participation. But he argued the benefits would be felt by Middle Australia. “This is a plan for Middle ­Australia that delivers for every Australian taxpayer, right up and down the income ladder,” he said. “Our aspiration is inclusive, not exclusive. Because when no-one is held back and no-one is left behind – everyone is lifted up.”

Under Labor’s changes, bracket creep is returned lower down the tax scales where the government argues it is most needed to provide relief. The revamp means it will take bracket creep six years to eat up the tax cuts for the average Australian worker on a wage of $73,000, versus four years under the existing arrangements.

The shake-up will ensure 11.5 million taxpayers will receive a bigger tax cut, with Dr Chalmers writing in The Australian that it will benefit 90 per cent of teachers, nurses, aged and ­disability carers and childcare workers.

Female taxpayers are now estimated to receive an average tax cut of $1649 compared with $1278 under the existing policy.

Dr Chalmers said Treasury’s advice made clear the tax changes would not add to inflationary pressures while they increased the take home pay of more people and boosting workforce participation.

Mr Richardson said workforce participation would probably go up, but not by a large amount.

Labor will need to negotiate the passage of its tax changes through the Senate, with Greens leader Adam Bandt saying he would push for additional relief for Australians in exchange for the minor party’s support.

If the Coalition opposes the legislation, the government must gain the support of the Greens and at least two Senate crossbenchers.

Business sounded the alarm on the prospect of even further changes being made to the tax package on Thursday, with Australian Industry Group chief executive Innes Willox saying it could be “calamitous for the political system”.

Mr McKellar warned that the government had opened a “Pandora’s box”. Minerals Council of Australia chief executive Tania Constable said the government needed to be “transparent about the sweetheart deals it is prepared to make with the Greens to achieve its legislative outcomes”.

Coalition MPs rounded on the government for not extending the low and middle-income tax offset – worth up to $1500. They said it was effectively being replaced by an $800 tax cut through the revamped stage three package. Neither the Coalition nor Labor planned to extend the temporary offset beyond the 2022 financial year.